M/S. GREAT WALL INDIA RESEARCH & DEVELOPMENT PRIVATE LIMITED,BANGALORE V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE

ITTPA 1971/BANG/2024

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The case involves M/s. Great Wall India Research and Development Pvt. Ltd., which appealed against the final Assessment Order concerning the assessment year 2021-22. The primary issue was the adjustment made towards interest on receivables from associated enterprises (AEs) and the initiation of penalty proceedings. The Transfer Pricing Officer (TPO) initially computed interest on delayed receivables at 12.72% based on SBI PLR rates, resulting in a significant addition to the assessee's income. Following the assessee's objection, the Dispute Resolution Panel (DRP) directed a recomputation, which reduced the interest rate to 5.19% but still resulted in a substantial addition. The Tribunal's decision focused on the appropriate method for calculating interest on delayed receivables and the consideration of RBI's pandemic-related relaxations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 43514 (ITAT-BANGALORE)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 14-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2021-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARSHA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Related party transaction
• Section: 92CA

Judgement Text

"IN INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI. KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.1971/Bang/2024 Assessment Year : 2021-22 M/s. Great Wall India Research and Development Pvt. Ltd., Crescent – 1 in Prestige Shantiniketan, 1st Floor, Unit 4, Whitefield Road, Bangalore North, Bangalore – 560 048. PAN :AAGCG 4232 P Vs. DCIT, Circle – 3(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri. Harsha, CA Revenue by : Shri. Sridhar E, CIT(DR)(ITAT), Bangalore. Date of hearing : 21.11.2024 Date of Pronouncement : 14.02.2025 ORDER Per Laxmi Prasad Sahu, Accountant Member : This appeal filed by the assessee against the final Assessment Order passed by the AO dated 16.08.2024 vide DIN and Order No. ITBA/AST/S/143(3)/2024-25/1067678744(1) with the following grounds of appeal: IT(TP)A No.1971/Bang/2024 Page 2 of 6 2. From the above grounds it is clear that the assessee has raised sole and substantive ground in regard to adjustment made towards interest on receivables and in ground No.2, the assessee has challenged initiation of penalty proceedings which is consequential in nature and ground No.3 is general in nature. IT(TP)A No.1971/Bang/2024 Page 3 of 6 3. Briefly stated the facts of the case are that the assessee filed return of income on 24.02.2022 declaring income of Rs.5,87,36,020/-. Assessee company is engaged in the business of software development and related services in the area of electrical and high.vehicle programme and infotainment testing. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee submitted reply and it was observed that the assessee company was involved in international transactions and the reason for selection for scrutiny was also international related party transaction in respect of business restricting or reassessment (type risk parameter). As international transaction was involved in this case, therefore the case was referred to TPO on 01.09.2022 under section 92CA of the Act. During the course of transfer pricing proceedings, the TPO, after careful examination noticed that the details of invoices submitted were payments received from AEs after credit period and the assessee had not provided the agreement pertaining to the determination of credit period between them and AEs. The TPO proposes to take average credit period of 30 days. The interest on just delayed receivable was computed using SBI PLR rates applicable for 2020-21 which was worked out to 12.72% and the amount of interest on delayed receivables computed by TPO is Rs.1,76,54,649/-. Accordingly, after receipt of proposed adjustment, the AO passed Draft Assessment Order on 31.08.2023 by making an addition of Rs.1,76,54,649/- to the total income of the assessee. 4. Aggrieved from the Draft Assessment Order, the assessee filed objection before the DRP. The learned DRP passed direction under section 144C(5) of the Act on 18.07.2024 where TPO was directed to recompute the interest on outstanding receivables. Accordingly, the TPO complied with the direction of the DRP on 29.07.2024 and the TPO revised the rate on outstanding receivables @ 5.19% and made addition of Rs.74,69,614/- to the total income of the assessee. Accordingly, the OGE was passed and added back an amount of Rs.74,67,614/- to the total income of the assessee. IT(TP)A No.1971/Bang/2024 Page 4 of 6 5. Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel for the assessee reiterated the submissions made before the lower authorities and submitted that assessee has used TNMM as the most appropriate method with a profit level indicator of OP/OC. The learned AR further submitted that the working capital adjustment has not been given to the assessee. The working capital adjustment subsumes outstanding receivables from the AEs. In such situation, further adjustments to the margins of the assessee by computing interest on outstanding receivables is not justifiable. The TPO has wrongly treated the delayed receivables from AEs as advancement of loan and computed the arms length interest adopting SBI PLR rate @ 12.27% resulting in TP adjustment of Rs.1,76,54,649/- and the DRP has directed to recomputed the adjustment in the light of facts observed as per para No. 2.1.26 to 2.1.34 of their order. The assessee company is a debt free company. It is wholly owned subsidiary of Great Wall Motor Company Ltd., China. The assessee is fully funded by the AEs for its operation in India. The assessee has no borrowed funds and no other interest has been paid to any other parties. Therefore, the assessee does not bear any working capital risk since it has been fully funded by its AEs and has no working capital contingencies. However, DRP has held that the working capital risk cannot be avoided. He further submitted that the assessee has generally received trade receivables from AEs within due dates as specified in the intercompany agreement. However, in 2021, there were few delayed receipt due to covid 19 pandemic and the AE’s company i.e., China was the most affected company during the pandemic. The trade receivables have been received within due dates from the subsequent Financial Years post the impact of covid 19. This shows that the delay was not intentional but consequential to the unprecedent pandemic. In this regard, the RBI provided relaxation for collection of export invoices raised during the period April 2020 to July 2020. The period allowed by RBI for collection of receivables was extended from 9 months to 15 months. The said IT(TP)A No.1971/Bang/2024 Page 5 of 6 relaxation for realization of extension of export proceeds is placed at Paper Book Page No.391. 6. On the other hand, the ld. DR relied on the order of the lower authorities and submitted that the assessee is unable to prove the extended credit period to its AEs. The agreements were not produced before the ld. TPO, therefore the TPO has considered the credit period of 30 days. The ld. DRP has considered the issue in detail. 7. Considering the rival submissions here the dispute regarding only on the addition made by the AO after direction of ld. DRP for Rs. 74,67,614/- after applying LIBOR rate whereas the invoices were raised to the AEs in CNY. The ld. DRP noted that the assessee was unable to demonstrate how the nature of its business or specific conditions warranted a deviation from the standard 30 days credit period typically considered reasonable. This lack of justification leaves the panel without a basis to consider a longer credit period reasonable. The panel emphasises that any deviation from the standard credit period must be supported by robust evidence that justifies such a departure based on the specific business context and industry practices. Considering the arguments of the ld. AR regarding not considering the RBI announces measures for dealing with the COVID-19 pandemic dated 01.04.2020 which is placed at paper book page No. 390 to 391 has not been considered while calculating the credit period. We noted that the assessee is also unable to prove on the finding of the ld. DRP regarding in case of loss arising due to fluctuation of foreign currency of CNY. During the course of hearing both the parties were agreed for the applying 6 months LIBOR plus 300 basis points for calculating the interest on delayed receivables considering the credit period of 30 days. The AO/TPO/DRP is directed to consider the applicability of the above noted RBI announcement as relied by the ld. AR to the extent of applicability in the case of the assessee. IT(TP)A No.1971/Bang/2024 Page 6 of 6 9. In the result the appeal of the assessee is allowed for statistical purpose. Pronounced in the court on the date mentioned on the caption page. Sd/- Sd/- (KESHAV DUBEY) (LAXMI PRASAD SAHU) Judicial Member Accountant Member Bangalore, Dated : 14.02.2025. /NS/* Copy to: 1. Appellant 2. Respondent 3. Pr.CIT 4.CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "